Graphic: China’s economy, stock market face uncertain recovery
The Chinese government recently announced stimulus measures, such as lowering the bank reserve requirements and cutting interest rates, designed to accelerate economic growth. But President-elect Donald Trump has vowed to impose steep tariffs on goods imported from China, which could hurt its economy as well as pinch stock market returns, which have lagged overall emerging markets over the long term.
Slowing growth: China's gross domestic product grew 5.2% in 2023, and the IMF projects that will slow to 4.8% this year and continue to drop through the end of the decade. In the third quarter, GDP grew 4.6% year-over-year vs. 5.3% and 4.7% in Q1 and Q2, respectively.
China's real GDP growth
Index heavyweight: China makes up a meaningful portion of emerging markets equities, with Chinese stocks representing nearly 28% of the MSCI Emerging Markets index.
Makeup of MSCI Emerging Markets index by country*
Equity exodus: Chinese equities have experienced outflows from separate accounts in 12 out of the last 13 quarters, with $511 million of outflows in the second quarter of this year. Overall, emerging markets have also seen outflows, including $10.1 billion in the second quarter.
Separate account flows (billions)
Can the rebound last? Chinese markets reacted positively after the stimulus announcement. Through October, the MSCI China index returned 21.7%, including a 23.9% gain in September. However, with the Trump administration promising new tariffs, economic growth may slow further than economists project.
Equity returns, China vs. EM ex-China**
*As of Sept. 30. **2024 data is as of Oct. 31. Sources: International Monetary Fund, MSCI, Morningstar Direct
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